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Get Informed


How much home can you really afford?

So, you've made it through the loan pre-approval process. Congrats! 

Now, at this point in the process, you may be thinking, “Wow! I qualify for a $450,000 mortgage. That’s awesome. I’m going to find the nicest home that $450,000 can buy!”

Before you storm ahead full-bore, you may want to consider the fact that there are some other costs associated with homeownership that will impact how much home you really can afford. 

A mortgage payment only includes the following costs: (i) the principal (loan repayment); (ii) interest (the bank's profit); (iii) private mortgage insurance, if your down payment was less than 15-20% (the bank's safety net); (iv) homeowner's insurance; and (v) all property taxes. However, there are additional costs to homeownership that one may want to consider before making any offers. 

For example, a 30-year fixed mortgage with a 6.3% interest rate with a 3% down payment will result in a monthly payment of a little over $3,300/month. You might say, "Well, after taxes, I bring home $6,000/month so I can afford that." However, if you're living a civilized area, you'll need to consider the additional costs that can add up:

  • Monthly Costs:

    • Municipal Water, Storm Drain, Sewer, and Garbage (City of Sacramento): These charges are set annually by the City of Sacramento, and they're billed together monthly (my bill is ~$180/month for a 3BR/3BA 1,700SF home).

    • Electricity (Sacramento Municipal Utilities District (SMUD)): Electricity costs can vary base off (i) the size of your home; (ii) how "air tight" the home is; (iii) its insulation; (iv) its age; (v) the urban tree canopy on the property you buy; (vi) when and how often you run your appliances (e.g., HVAC, washer/dryer, dishwasher, and water heater (if it's electric); (vii) the market cost of energy; (viii) the time of year and (viii) some other factors. As and example, my SMUD bill for a 1,700SF home with two A/C units, a gas dryer, and an electric water heater in Sacramento is roughly $150-250 in the summer and under $100 in the winter. 

    • Natural Gas: The cost of natural gas also varies in the same way that electricity costs vary. In the City of Sacramento, Pacific Gas and Electric Company (PG&E) provides the natural gas to service any gas appliances you may have in your home. My gas bill ranges from $15/month in the summer to upward of $60/month (I'd guess that these are on the low end of the spectrum).  

    • Homeowner's Association Fee: Homeowner's Association fees (known as "HOA fees") are costs imposed by a Homeowner's Association, if a home is in an HOA territory. The most common areas that you see HOA fees is in newer developments, gated communities, or homes that have shared walls (row houses or condos). This is something to keep in mind when searching for homes. You’ll want to ask if there’s an HOA governing any home that you're interested in make an offer on.

Thus, on top of your mortgage, you can expect to pay an addition few hundred dollars per month to address other homeowner costs.

Additionally, your mortgage bill may be larger due to special taxes or assessments imposed on your particular parcel. Since taxes are included in your mortgage bill, you may realized that your mortgage is higher than you initially expected. 

  • Costs associated with your tax bill:

    • Mello-Roos Assessment: When developers build new subdivisions, they sometimes obtain approval to create a Community Financing District from their local city council or county board of supervisors. The CFD encompasses the developer's subdivision. The creation of the CFD allows the City to sell bonds to investors. The proceeds from the bonds cover the developer's cost to install new roads, sewer lines, water lines, stormwater lines, and other infrastructure in the developer's subdivision. A Mello-Roos assessment is placed on the homes in the subdivision and the homeowners pay back the cost of bonds over time. Eventually, usually 20-30 years down the line, the bonds are fully paid off and the Mello-Roos assessment disappears.   

    • Landscape and Lighting Assessment: These assessments are approved by the local government and cover the cost of maintaining landscaping on the public right-of-way and the lighting in the area. 

    • Other Special Assessments: Sometimes, usually through an election, additional assessments are approved by voters to pay for things like the public libraries, parks, or other community assets. 

The existence of any of these assessments could lead to a higher mortgage payment, some areas are assessment more than others. You'll want to ensure you ask about any taxes / assessments that the property you're interest in is subject to. This information is usually on the preliminary title report and should be included in some mandatory disclosures. 

Where do you want to live? 

As the old adage goes. "Location. Location. Location."

Some buyers are set on living in a certain area because of the school districts, the parks, proximity to work or other amenities, or simply because of person preference. It's important to relay to your real estate agent both the areas that you want to live in and those that you refuse to consider. 

Keep in mind that you financial situation may dictate which areas you can afford to call home. 

When looking at locations, you'll also want to look at the local crime map, Megan's law map, school district maps, utility district maps, etc.

It may also be a good idea to search your local government's meeting agenda archives to see if there are any major road or economic development projects that may impact your property.

What type of home do you want?

It's important to relay to your real estate agent what aspects of a home non-negotiable and whate aspects are negotiable. 

Be as communicative and specific as possible when relaying to your agent what type of home you are looking for:

  • Location;

  • Size in square footage;

  • Number of bedrooms/bathrooms;

  • Detached or attached garage;

  • Dish washer;

  • Architectural sytle;

  • Floor plan layout;

  • Number of stories; 

  • Home orientation;

  • Solar;

  • Location of laundry hookups; 

  • Front/back yard; 

  • Other amenities (hot tub, pool, zeroscape, porch, quite road, etc.)

What does the home hunting process look like?

It should be a fun and exciting process. 

When engaging in the homebuying process, know that you'll need to carve out time outside of work hours, especially on the weekends, to tour homes with you agent. You'll want to be in an open dialogue with your agent to ensure that you're able to timely view any homes that interest you. You can use third-party home search engines to send homes to your agent. Your agent will then need to check their local Multiple List Service to review the showing details of the home to get an idea of how to access the home and when it may be accessed by buyers. Understand that some homes listed for sale will be occupied by the sellers, so you and your agent will need to work around the seller's schedule. 

Depending on how many hours you carve out for home tours, you may be able to view a handful of homes in a day. Personally, when touring with clients, if we're moving quickly and the homes aren't more than 10 minutes apart, we can usually view three homes per hour (20 minutes/home). However, gauging for 30-35 minutes per tour with travel time included is likely more realistic.



*The information outlined in this page is intended to help homebuyers strengthen their understanding of the homebuying process. This information is provided as general information and not all information applies to every homebuyer's situation. This information is also not legal advice and the act of providing this information does not create an attorney-client relationship. Homebuyers should use this information in conjunction with many other resources to guide them through the homebuying process. The best resource being a licensed real estate profession capable of shepherding them through the process based on the specifics of their circumstances.  

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